Monday, September 9, 2013

Pension Committee Reigning in Long Time Workers' Earnings?

Last
week, we looked at the terms, annual
required contribution, age entry normal cost method, and projected unit credit cost method. This week we look at a rare but more likely
outcome given educators, who may decide to remain
working out of necessity for much longer periods of time given Illinois' educational climate.

Background: Very recently, Senator
Daniel Biss of Skokie has identified an opportunity to be found in a leak of
information from the Pension Committee of Ten, on which he serves. His comments follow:

“This brings me to my second
topic: a leaked media report about some of the committee’s deliberations. On
Friday, August 23, several news outlets published a list of items under
consideration by our committee…

These ideas are in fact all
under discussion by the conference committee, but nothing has been finalized
yet and our conversations remain in a state of flux. That means that this is an
ideal moment for you to share your feedback on these items, as well as any
other thoughts you have on the pension issue. I look forward to hearing your
thoughts as we hopefully enter the late stages of our deliberations, and I very
much hope that we will be able to reach a compromise that, while painful, will be
manageable for all stakeholders and will put our pension systems on a clear
path to stability” (http://senatorbiss.com/).

This Week: One of the bulleted leaks
in the Senator’s memo considers “Changing
interest rates used to calculate the money purchase option formula.”

Money Purchase Options (often called PBO’s for
Purchase Benefit Options) are simply another mathematical method to calculate
the pension payout due to a retiree after so many years of service.

Most
teachers and state employees determine their pension earnings through a
calculation that regards average salary combined with number of years
teaching. According to the most recent
TRS information, “Average
salary is the average of the four highest consecutive annual salary rates
within the last 10 years of creditable service.” The number of years teaching
is based upon a multiplier, usually 2.2% for the Early Retirement Option. “Years
of creditable service determine the percentage of the average salary to which you
are entitled” (http://trs.illinois.gov/members/pubs/tier1guide/retirementbenefits.pdf
).

But some
educators/workers who have been teaching before July of 2005 may calculate
their pension payout using the method called a money purchase option.
Senator Biss communicates the Committee wants to change the interest
rates that determine this number – the
change will be to lower it. Here’s
why:

The report
continues, “For example, an
81-year-old teacher recently retired who was eligible for the money purchase
option after teaching for 58 years. That teacher would receive a pension of
roughly $68,000 a year under the regular formula. Under the money purchase
option, he would receive $174,000 a year, according to TRS spokesman David
Urbanek.”

By the way, this was back in
fall of 2011.

Money purchase options were an unexpected devilish detail that
proved a problem for then-House Minority Leader Tom Cross during his push for
SB512, but don’t think they’ve forgotten in the General Assembly. The Committee is working to circumvent this
possibility by lowering those statutory interest rates – and by using the other
bullet in Senator Biss’ memo: a decrease
in employee contribution by 1%. Lowering
the contribution rate becomes another factor in blocking an alternate, higher
payout for longer years of service.

About Me

I am a retiree, political activist, social advocate and community volunteer. I taught at Lyons Township High School in LaGrange for 34 years in the Language Arts classroom and worked as an administrator for several years. My current avocations include various community outreach and assistance programs. Having benefitted from employment in a collegial, reflective teaching environment that encouraged dedication and professionalism, I continue to seek the promotion of education at all levels as a long-term effort combining talent, perseverance, commitment, and constant professional growth - not a blind adherence to a business model of measured production.

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